New Opportunities for Mobile Venture Capital

The mobile and wireless industry is in a constant state of flux as new technologies emerge at an increasingly rapid pace. As I discuss in a new report at GigaOM Pro, where there is market disruption, venture capitalists will search for new opportunities. Certain trends are driving startups to build new businesses to serve consumers, enterprises and network operators in the mobile and wireless segment. Through analysis of CB Insights‘ data on mobile and wireless market venture capital deals from the third quarter of last year to the second quarter of this year, we examined some of these trends, which provide insights into the future of the industry.

Some of the macro trends include an overall increased usage of smartphones and growing consumption of mobile content driving demand for applications and network bandwidth. The emergence of the “Internet of Things” — the connection of machines to the mobile Internet — is meanwhile creating new growth opportunities for carriers and efficiencies for enterprises.

As detailed in the chart below, venture capital investment in the mobile and wireless industry grew to $312 million in the second quarter of 2010, a 2-percent increase over the previous quarter. This capital was committed to 37 deals and represents five percent of all venture capital invested in the quarter. An important factor driving investment is increasing M&A activity and exit opportunities which is providing new capital to VC’s for new deals and improved fund returns.

Segments within the mobile and wireless industry that received that most capital were wireless telecom services, mobile payments, VoIP & IMS, application development and social networking. The largest five deals in the mobile and wireless industry represented 31 percent of capital invested in the quarter, though deal size in the mobile and wireless industry, while trending higher over the past four quarters, is still smaller than the average VC deal across all industries. The majority of startups funded are headquartered in Massachusetts, New York and California, with the California attracting the greatest amount of capital.

I expect the pace of investing to continue to grow and accelerate as the M&A activity increases and firms put cash reserves to work to improve their competitive position. The insatiable appetite for wireless data anywhere anytime will continue to provide plenty of opportunities for startups in the mobile and wireless segment.